PAAS (a new top 10 position for me):
As I mentioned earlier this week, I bought some Pan American Silver at $14.82 (nelson beat me with a slightly better price). The silver stocks (as well as the silver price) have been hit pretty had over the last several weeks and are now below $16/oz. I'm basing my valuation of silver stocks on $20 silver.
Here is why I like PAAS:
1) PAAS has a very strong balance sheet - Net cash of $70 MM, ST Investments of $50 MM and Investments in other companies at $55 MM. All of this adds up to $1.14/share in net cash on the balance sheet.
2) PAAS has been spending over the last two years on expansions at its La Colorada and Dolores mines. These two mines are the biggest drivers of earnings and cash flow for the company and those investments are now coming to an end. Even at spot silver prices, PAAS should generate significant FCF.
3) PAAS is decent producer of zinc (which I'm a big bull on). PAAS should produce about 55 million tons of zinc this year, and I believe that zinc prices could move even higher in 2018-2019.
4) Most of the value of the company is focused on Mexico and Peru...two stable mining jurisdictions. They do have a mine in Bolivia and one in Argentina and a project in Argentina, but these have very little value right now (near the end of their mine life).
5) As a result of the strong cash flow that I expect a small improvement in silver prices, I believe that PAAS is worth ~$21.
Note: I'm not a gold or silver bug...and actually hate investing in precious metals stocks. They are beaten up though, so I can't ignore that fact.
Just trying to make a few bucks.
